Question

I am doing a valuation of a company which has subsidiaries in seven countries. The projections are consolidated and there is no country wise breakup. How do i calculate the tax rate, cost of debt for WACC calculation and how do i estimate the taxes to be deducted for free cash flow calculation

Answer 1

I'm actually wondering about the exact same thing. Also, what about the return to equity calculated with CAPM: what risk free rates and beta values should one use?

Answer 2

My suggestion for sanna510 is to calculate the historical effective tax rate from consolidated statement and use it. Cost of debt can be assumed as a weighted average cost of debt for existing company's debt (for doing this you need a breakdown of all debt agreements as of valuation date)

Answer 3

get the average cost of debt from the 10-k - look at the debt tranches

Answer 4

The taxes are applied to the actual EBIT for each subsidiary. (Assuming no NOLs) you would use the marginal tax rate for each country/subsidiary to each country/subsidiary EBIT. The KPMG tax survey should be able to help with this.

Based on how each subsidiary is managed, it may make sense to do a WACC for each subsidiary as well. You can then arrive at an average WACC for the consolidated company based on the value of each subsidiary.

For the cost of debt, you can go with rchanna's suggestion if you work on a consolidated level. If instead you work on a sub by sub level, you should derive an implied cost of debt based on an implied rating for the for each sub (am guessing you have historical financials by sub). The cost of debt should be influenced by the country where the sub is located as each country will have different risk free rates and such.

Answer 5

not using sum-of-parts valuation? how about the currency exposure?